Stock prices are not necessarily based on the financial performance of a company. The market forces of demand and supply influence them. While there is no straightforward equation that gives us a guarantee on how stock prices will behave, there are certain factors that can affect its performance. Some of these factors can be inflation, market sentiment, demographics, market trends, and so on.
In this article, we will talk about how you can leverage stock finance to boost your company’s stock prices. It needs to be kept in mind that the suggested tips are not definite and can be subject to pitfalls, hence we have also listed the disadvantages of using these methods. Read on to know more.
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This is one of the most common methods companies undertake to increase stock prices. This is because, during a stock buy-back, the stock is scarce in the market, which raises demand and thus, raises prices. In this way, the company signals that the stock is stable and will improve in the future.
While this is a common way to increase stock prices, numerous factors affect stock prices (such as investor and company expectations, legal issues, and so on). This is why even though stock prices may increase as a result of this method, the increase will not be uniform across several companies in a particular industry. Stock fluctuations may not completely be due to stock repurchase, so keep this in mind before considering this method.
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Financial theory says that capital structure does not impact firm value. However, in real-life market situations, increasing or raising debt can reduce the overall risk of the firm, in case the firm has not reached a point of financial instability. Moreover, the amount of debt raised and how it will be used can also affect the stock price in the short run.
Based on the debtor’s flexibility and timely returns, the type of debt raised can indirectly impact stock prices as well.
In many sectors across the market, consolidation is a major trend due to the increased number of M&A activities. There is a lot of literature on how M&As can affect stock prices as well as shareholder value. In most of the case studies conducted over the years, M&As have had a positive effect on stock prices.
However, it needs to be understood that most of the work done on M&A and stock prices usually show the effects in the short run. There are very few comprehensive studies that look at the effect of mergers and acquisitions on stock prices in the long run. Most studies use regression in their research methodologies, large time-series data is required for the effect of time lags to be less and for this method to have more significant results.
This essentially includes reorganizing, evaluating, valuing and prioritizing the main assets of a company. This works especially for bigger companies that have a number of divisions, and several subdivisions and so on. These become business units for the company, and the performance of each business unit can be assessed according to the returns they bring, such as sales growth, EBIT margins and so on.
This means that by assessing the performance of each business unit, the company can get an idea of how each business is doing. For example, if one unit is not performing well enough, the company can raise funds to hire additional talent to improve returns or may decide to sell the unit to another firm. These strategies will show the investors that the company has a desire to grow and improve financial performance which could, in the long term, potentially lead to higher profits.
Whenever a company is profitable, a certain percentage or a fixed amount is usually reinvested in the company. The remaining is distributed among shareholders as dividends. This can have a positive effect on the stock price, based on the consistency and the amount of dividends distributed. Another strategy to increase stock price can be using a certain part of the profits as capital investments in other firms.
Therefore, diversifying portfolio is a strategy that can be implemented by capital markets, and this is because the company will display its intentions to diversify the risks and returns from different investments and operations.
Therefore, we can see that there are numerous ways for a company to boost its stock price. We have also mentioned the pros and cons of each strategy, because due to the nature of the market, these may not always have the desired results. Instead of the execution of just one strategy, it is likely that a combination of all of these will boost the stock price of the company.